Just the second CEO in the firm's history, after founder Raymond "Chip" Mason's 37-year reign, Fetting's ascension wasn't easy—he wasn't the board's first choice—nor was his tenure.

Legg is a complicated company, parent to several highly regarded boutique firms. Those include fixed-income kingpin Western Asset Management, which makes up the lion's share of Legg Mason's assets, with $446 billion under management, as well as small-cap specialist Royce Funds, seasoned income investors ClearBridge Advisors, and Permal, a pioneer in funds of hedge funds.

Legg Mason is looking for a new CEO. But the story is more complicated than that.

The story of Legg Mason has all the hallmarks of a Greek tragedy. There's deception, obfuscation, misdirection and, throughout it all, a colorful cast of characters convinced that theirs is the correct view. Barron's outlined the complicating factors and told readers the outlook wasn't great in its April 9, 2012, cover story "Can Legg Mason Bounce Back?"

Maybe it still can, but it has a long way to go. The firm was once the country's fifth-largest asset manager, with assets peaking at more than $1 trillion in 2007. The stock price peaked a year earlier, at $136. It's been a harrowing ride since. Legg closed the week at $26.95 after rising 5% the day of the news, but turned in a three-cent loss Thursday, giving it the dubious distinction of being the only company in the S&P 500 to post a loss that day. The stock is up 12% for the year.

"They had a fairly awful stretch," says Mark Casady, CEO of LPL Financial, the largest organization of independent financial advisors. "Mark Fetting managed to save the firm. I'm not sure how many other firms facing the same problems would have made it through."

It's not uncommon to hear that Fetting, a generally well-liked guy, did all he could for the company. He cut $143 million in operating expenses at the corporate level, reduced head count by a third, and consolidated distribution of the affiliates' retail mutual funds. But as we described in our cover story, it's been a rocky road, and there are plenty of even more vocal critics inside the company and out—though most would speak only on background, if at all.

Fetting has had a tense relationship with the affiliates, made worse when he essentially shopped the entire firm around on the sly this past spring. Not surprisingly, no one was interested in discussing a deal in which the most important question—whether the affiliates are on board—was mired in subterfuge.

The affiliates have chafed at Fetting's efforts to divert more money away from them and into the corporate office. Any new CEO will have to mend those relationships. One way to do that would be to convert the firm into a holding company—good for the big affiliates, but bad for small affiliates that would get lost along the way; and bad for shareholders, who would see revenue and profit shrink even further.

Which brings us to Nelson Peltz and his fund, Trian Fund Management. Peltz has been an investor since 2009, and now owns about 10.9% of the company and has a seat on the board. It's worth noting that Peltz wasn't named nonexecutive chairman of the board—that goes to Allen Reed, the lead independent director—though it's unlikely his interest in the company is waning. Peltz is generally seen as the driving force behind much of Legg's recent streamlining and other moves. He's agreed to limit his stake and not acquire more board seats in an effort to force more dramatic changes. That agreement expires Nov. 30, before a new CEO will be chosen.

Change has to happen, which is why many say Fetting had to go. The larger affiliates are unhappy with the status quo. Some may be able to buy themselves out or find financing to do so, but it's unlikely the board would allow that. A new CEO needs to be able to broker a peace with the larger affiliates and lop off the smaller ones (beyond the seven or so largest) that perhaps aren't drains on the firm's finances, but are certainly drains on its focus.

Options are limited: It wasn't easy finding a CEO five years ago, and shopping the firm didn't gin up much interest.

It wasn't just the size of the commitment by the New York Federal Reserve and the Treasury, which eventually exceeded $180 billion—even more than the feds have spent to date to prop up Fannie Mae and Freddie Mac. Some executive bonuses and lavish corporate events at AIG (ticker: AIG) also angered Congress and other critics.

But the government has been made whole, and then some, due to last week's sale of 637 million AIG shares owned by Treasury for proceeds of $20.7 billion. In fact, the Treasury and the Fed have recovered $197.4 billion for the American taxpayer, including interest, fees, and the realization of capital gains. That amounts to an excess return of $15.1 billion to date, and doesn't include the feds' remaining 15.9% common-stock interest in AIG.

The latest sale was the fifth since May 2011, and one of the largest follow-on stock offerings ever. It cut the government's stake from 53.4%, which should help the shares. The deal was struck at $32.50 a share, and Friday AIG had traded up to $35.02. All the sales occurred above the government's estimated break-even price of $28.73 a share.

Along with the Treasury's patience, much of the credit for the satisfactory outcome of the AIG bailout must go to Robert Benmosche, the former MetLife head who took over AIG in August 2009. He spearheaded efforts to sell off much of the company's valuable foreign insurance businesses to pay back the U.S. government, overseeing the sale of Alico and most of AIA and Nan Shan. More important, he bolstered the company's sagging morale and returned it to profitability. Today AIG consists of an international property-casualty operation, a large U.S. seller of life and retirement products, a now-growing mortgage insurer, and an airplane-leasing company.